Recovery may take longer than usual: Greenspan

(Reuters) - Economic growth has stalled and recovery may take longer than usual, former Federal Reserve chairman Alan Greenspan said on Monday.

"As of right now, U.S. economic growth is at zero," Greenspan said at an investment conference in Jeddah, Saudi Arabia's second-largest city. "We are at stall speed."

"Recovery might take longer to emerge than it usually does," he added.

The longer growth stays at zero, the more likely the world's largest economy would start to contract, he said, adding that globalization of trade could ease some shocks.

"Growing globalization of trade and the economy would facilitate the absorption of shocks in the U.S.," he said.

In updated economic forecasts released last week, the U.S. central bank lowered its outlook for 2008 growth by a half percentage point to between 1.3 percent and 2 percent, citing the prolonged housing slump and bottlenecks in credit markets.

 

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Dresdner Bank says to support Ambac rescue

(Reuters) - Dresdner Bank, part of the Allianz (ALVG.DE: Quote, Profile, Research) insurance group, intends to support a rescue package for U.S. bond insurer Ambac Financial Group Inc (ABK.N: Quote, Profile, Research) with a sum in the low double-digit millions of euros, the head of Dresdner's investment banking operations said on Monday.

Various rescue options for Ambac were now under discussion, Stefan Jentzsch told reporters. "If what is now on the table comes to pass then we will take part in the package," he said.

 

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Citigroup May Post First-Quarter Loss, Whitney Says

 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank by assets, may post its second-straight quarterly loss because of writedowns on home-equity loans and junk-grade corporate loans, Oppenheimer & Co.'s Meredith Whitney said.

The bank may post a loss of $1.6 billion, or 28 cents a share, for the first quarter, compared with a profit of about $5 billion, or $1.01, a year earlier, Whitney wrote today in a note to clients. The prediction compares with the 63-cents per share average of 12 analyst estimates surveyed by Bloomberg.

The rate of loan losses is ``grossly underestimated by consensus estimates'' at Citigroup and other U.S. banks, Whitney wrote. ``Core fundamentals are rapidly deteriorating.'' She cut her per-share estimate for 2008 earnings by more than 70 percent to 75 cents. The New York-based company's shares could fall more than 36 percent to less than $16, she wrote. They've declined about 15 percent this year.

Citigroup posted a $9.8 billion loss for the fourth quarter, the widest in its 196-year history, after writing down subprime mortgage-linked collateralized debt obligations whose value plummeted last year as investors shunned securities linked to the least creditworthy borrowers. Vikram Pandit stepped in as chief executive officer in December, after Charles O. ``Chuck'' Prince was forced to resign.

Whitney was among the first analysts to gauge the depth of Citigroup's losses, writing in a note last October that the bank may have to cut dividend payments to shareholders for the first time since the 1990s. In January, the bank slashed its dividend by 41 percent, reversing a pledge made by its executive- committee chairman, former U.S. Treasury Secretary Robert Rubin, to preserve the shareholder payout.

 

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SocGen in record loss, may take new writedowns

(Reuters) - Societe Generale (SOGN.PA: Quote, Profile, Research) confirmed a record fourth-quarter loss of 3.35 billion euros ($4.93 billion) after absorbing a huge rogue trading scandal that has made France's second-biggest listed bank a potential takeover target.

The loss coincided with an internal report acknowledging that better systems might have prevented the costly stock market gambles it blames on junior trader Jerome Kerviel.

SocGen, like many of the world's top banks, has also been hit by losses related to a global credit crunch and the bank warned it may make further writedowns in the future.

Executive Chairman Daniel Bouton told Reuters the 144-year-old firm was determined to ride out the storm as an independent bank, despite reports of a potential bid from long-time suitor and arch-rival BNP Paribas (BNPP.PA: Quote, Profile, Research).

"I am completely determined to continue with our strategy because, even taking into account our very bad year in 2007 due to the financial crisis and this fraud, it's this strategy which creates and will create the most value for shareholders," Bouton said in an interview. "This is my opinion, and it's one that's backed by the board."

SocGen's fourth-quarter net loss compared with a 1.18 billion euro profit a year earlier and a fourth-quarter profit of 1.0 billion euros unveiled by rival BNP Paribas, although BNP Paribas' results were down from the year before.

SocGen cut its 2007 dividend to 0.90 euro from 5.20 euros.

 

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Reed to buy ChoicePoint, sell info division

(Reuters) - Reed Elsevier announced the acquisition of U.S. risk-management business ChoicePoint Inc for $4.1 billion including debt alongside its results, as well as a renewed cost-savings drive and the planned sale of an advertising-dependent information business.

Shares in Anglo-Dutch publisher Reed, which have outperformed the DJ Stoxx European media sector by 5 percent over the past year, jumped 6 percent to 619 pence on the news on Thursday.

The $4.1 billion for ChoicePoint comprises $3.5 billion in cash for the equity, at $50 per share, and 600 million pounds in debt. CheckPoint shares closed at $33.66 on Wednesday.

Reed said that combining ChoicePoint with its LexisNexis risk-information and its Analytics group would create a risk-management business with $1.5 billion in revenue and a leading position in a fast-growing market.

The London-based company said buying ChoicePoint had the unanimous backing of the U.S. company's board and now required shareholder and regulatory approval. ChoicePoint is based in Alpharetta, Ga. and employs around 5,500 people.

Reed also announced that it would divest its Reed Business Information (RBI) arm to reduce its exposure to cyclical advertising markets. The Reed exhibitions business will be kept.

Advertising accounts for around 60 percent of revenues at RBI, which itself generates around 20 percent of Reed's 4.6 billion pound group revenues.

 

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UBS to Shorten Ospel Term to One Year at Re-election

(Bloomberg) -- UBS AG said it would reduce Chairman Marcel Ospel's next term of office to one year from three after Europe's largest bank by assets reported a record loss.

Ospel, 58, was a force behind the merger of Swiss Bank Corp. and Union Bank of Switzerland that created UBS in 1998 and has been chairman for seven years. UBS posted a 12.5 billion-franc ($11.4 billion) fourth-quarter loss after an expansion into debt trading led to writedowns when the U.S. housing market slumped.

``Shareholders have a lack of confidence and that is linked to Ospel's name,'' said Vinzenz Mathys, an analyst at the Ethos Foundation, an investor in UBS calling for a special audit of the bank's risk controls. ``We are disappointed because UBS could have proposed new candidates.''

Shareholders will vote on re-electing Ospel and two other board members to shortened terms at the annual general meeting on April 23, Zurich-based UBS said in an e-mailed statement today. Sergio Marchionne, Fiat SpA's chief executive officer, was named a non-executive vice chairman.

UBS's losses already led to the departures of former CEO Peter Wuffli, 50, his finance chief Clive Standish, 54, and Huw Jenkins, 50, who ran the investment bank.

``It will take at least a year, if not longer, to clean up things at UBS and Ospel being around means there will be no clean cut with mistakes of the past,'' said Ralf Rybarczyk, who manages 1.5 billion francs at DWS Investment GmbH, including UBS shares.

`Current Challenges'

Peter Voser, finance director at Royal Dutch Shell Plc, and Larry Weinbach, the former chairman of Unisys Corp., will also stand for re-election to one-year board terms at the annual meeting, UBS said. Voser, 49, will take over from Weinbach, 68, as chairman of the audit committee. In subsequent elections, all board members will be elected for one year, the company said.

Marchionne, 55, was named non-executive vice chairman to replace Marco Suter, 49, who was an executive vice chairman before taking on the role of chief financial officer in October. Italian newspaper MF reported on Feb. 15 that Marchionne was a possible replacement for Ospel, which the Fiat executive denied. He said in a statement today his new role is ``absolutely compatible'' with running Fiat.

``With these moves we have strengthened the leadership structure in order to manage UBS's current challenges,'' Ospel said in the statement. ``I proposed the new tenure rule to the board, and am prepared, pursuant to their request, to stand for re-election for one year.''

UBS rose 48 centimes, or 1.3 percent, to 36.80 francs by 2:08 p.m. in Swiss trading. The stock has fallen 30 percent this year, the fourth-worst performance on the 60-member Bloomberg Europe Banks and Financial Services Index.

 

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Microsoft to Change Technology Practices in Bid to Appease EU

 (Bloomberg) -- Microsoft Corp., the world's biggest software maker, announced a series of changes in its technology and in how much information it gives developers about its products, in a bid to satisfy European regulators.

 

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KKR Financial Delays Repayments, Starts Negotiations

(Bloomberg) -- KKR Financial Holdings LLC, Kohlberg Kravis Roberts & Co.'s only publicly traded fixed-income fund, delayed repaying debt a second time in six months after failing to find buyers for commercial paper backed by mortgages.

Lenders to the fund agreed to the delay as KKR Financial seeks to restructure, the San Francisco-based company said yesterday in a regulatory filing. KKR Financial, whose stock has fallen 50 percent in the past year, didn't say how much debt is affected.

The announcement rekindled concerns that the decline in the market for short-term asset-backed debt, which totaled $1.2 trillion in August, will accelerate after a rebound early last month. Assets fell to $796 billion in the week ended Feb. 13, the third weekly drop. Standard & Poor's downgraded ratings on notes issued by KKR Pacific Funding Trust last week, citing uncertain pricing on the AAA rated securities that support them.

``The picture is getting worse and worse,'' said Felix Freund, who helps manage the equivalent of $14.7 billion of fixed-income securities at Frankfurt-based Union Investment GmbH. KKR Financial's second repayment extension ``shows there is still a lot of levered investments in the credit market that we can't see.''

About half the debt will be due by March 3 instead of Feb. 15, with the rest owed on March 25, according to the filing.

The talks come less than six months after the fund received a $230 million cash infusion from investors following losses on residential mortgages in the wake of the U.S. subprime crisis. The fund, led by Chief Executive Officer Saturnino Fanlo, raised a further $270 million in a rights offering with some of New York-based KKR's own partners buying shares in it, which had $19 billion of assets at the end of December.

Repricing `Driver'

The deferral drove investors to seek the security of government debt, sending 10-year Japanese bonds to the biggest gain in two weeks while perceived corporate risk in Asia and Europe soared. Contracts on Europe's Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 26.5 basis points to 611.5 today, according to Deutsche Bank AG. A basis point is 0.01 percentage point.

``The driver behind the current repricing is KKR Financial Holdings delaying repayment of CP for the second time,'' analysts led by Mark Harmer, head of credit research at ING Groep NV, said in a note to clients today.

KKR Financial fell 30 cents, or 2.1 percent, to $14.23 at 11:44 a.m. in New York Stock Exchange composite trading. Zoe Watt, a spokeswoman for KKR in London, declined to comment.

IPO

Kohlberg Kravis Roberts, the New York-based investment firm run by Henry Kravis and George Roberts, raised $800 million in KKR Financial's initial public offering in June 2005, selling the shares for $24 apiece. The fund raised money by selling commercial paper to invest in mortgages. It sold almost half of its mortgage loans in August as prices on bonds linked to U.S. home loans started to drop, leaving it with about $5.3 billion of mortgages.

Both Kravis and Roberts sit on KKR Financial's six-member investment committee, alongside KKR Partner Scott Nuttall, KKR Financial's Fanlo and Chief Operating Officer David Netjes.

Kravis and Roberts started the firm with Jerome Kohlberg, their colleague from Bear Stearns Cos., in 1976. Kohlberg left in 1987 and started his own buyout group, Kohlberg & Co. LLC. The private-equity business owns more than 42 companies with more than $180 billion of annual revenue and about 800,000 workers around the world. The firm's investments range from Alliance Boots Ltd. in the U.K. to Texas power producer TXU Corp., now known as Energy Future Holdings Corp.

 

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U.S. Economy: Housing Slump Fails to Quell Inflation

(Bloomberg) -- The two-year housing slump pushing the U.S. economy toward a recession hasn't alleviated inflation pressures, reports today showed.

Consumer prices rose 0.4 percent from December, with costs excluding food and energy climbing 0.3 percent, the most since June 2006, the Labor Department said. Builders started work on 1.012 million homes at an annual rate in January, close to a 16- year low, the Commerce Department reported in Washington.

The figures mean Federal Reserve Chairman Ben S. Bernanke will need to consider raising interest rates as soon as the economy stabilizes. Bernanke, who last week said the Fed is prepared to keep lowering interest rates, warned that faster inflation would ``greatly complicate'' the central bank's job.

``What this means is that they don't have as much comfort to play with rates,'' Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said on Bloomberg Television, referring to Fed officials. ``Once the U.S. economy looks like it's started to stabilize, they're going to have to jump right back in to that, raising rates back up to neutral.''

Treasury securities slumped after the consumer price report, while recouping most of the losses later. Ten-year note yields increased to 3.93 percent at 9:54 a.m. in New York from 3.90 percent late yesterday. The Standard & Poor's 500 stock index lost 0.8 percent, to 1,337.97.

Lowest Since 1991

Building permits, an indication of future construction, fell 3 percent to a 1.048 million rate, the lowest level since November 1991, today's Commerce report showed.

Housing starts were projected to rise to a 1.01 million pace from an originally reported 1.006 million rate in December, according to the median forecast in a Bloomberg survey of 72 economists. Permits were forecast to drop to a 1.05 million rate, from 1.068 million in December.

``We don't think housing has hit bottom yet,'' said Douglas Porter, deputy chief economist at BMO Capital Markets in Toronto. ``Until we get some stabilization in sales or even a mild improvement, it's likely that construction will continue to weaken.''

A jump in food and energy costs, rents and clothing prices led the consumer-price index higher last month. Economists had forecast a 0.3 percent increase, with the so-called core rate gaining 0.2 percent, Bloomberg surveys showed.

Today's price report ``certainly showed a broad-based intensification of inflation pressures,'' said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. While the Fed currently ``is looking at growth,'' inflation ``will come back on the radar screen'' when economic data improve, he said.

Food Costs

Food prices, which account for about one-seventh of the CPI, rose 0.7 percent, matching the biggest gain since May 2004, after a 0.1 percent increase in January. Energy prices last month increased 0.7 percent, after rising 1.7 percent the previous month.

``Even if energy prices remain flat, the continued rise in retail food prices will damp consumer spending growth,'' JPMorgan Chase & Co. economists wrote in a note to clients last week.

Fuel costs were up 4.5 percent. Apparel prices rose 0.4 percent after a 0.1 percent increase in December.

The consumer price index is the government's broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices that consumers pay for services ranging from medical visits to airline fares and movie tickets.

 

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Bernanke Turns Notes Into Losers as Refinancing Rises

 (Bloomberg) -- The more Federal Reserve Chairman Ben S. Bernanke cuts interest rates, the less appealing 10-year Treasuries become to investors like Doug Dachille, chief executive officer of First Principles Capital Management LLC.

Consumers taking advantage of lower borrowing costs have pushed the Mortgage Bankers Association's refinancing index to its highest level since March 2004. Ten-year notes fell 4.83 percent in April 2004 as the extra cash homeowners pocketed from replacing high-rate loans spurred bigger gains in retail sales and consumer confidence than forecast.

As then, a drop in rates may help ease the burden of consumers' monthly payments and contribute to forecasts of a rebound in the economy, diminishing the appeal of government debt. The price of the 10-year note has fallen 3.15 percent since Jan. 23, according to Merrill Lynch & Co. index data, and St. Louis Fed President William Poole said Feb. 11 that ``the best bet is that we will not have a recession.''

``There is no reason for people to bring the 10-year note yield down,'' said Dachille, 43, who manages $7 billion in assets at New York-based First Principles. Given that ``the Fed is cutting rates and the administration is providing a stimulus package, you'd expect that over the next two or three years the economy will recover.''

Policy makers slashed their target rate for overnight bank loans by 2.25 percentage points to 3 percent between Sept. 18 and Jan. 30. Bernanke indicated last week that he's prepared to cut rates further to revive the economy and encourage banks to lend.

Yields Climb

``More-expensive and less-available credit seems likely to continue to be a source of restraint,'' Bernanke told the Senate Banking Committee on Feb. 14. The Fed ``will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,'' he said.

Ten-year note yields rose 12 basis points, or 0.12 percentage point, to 3.77 percent last week, according to New York-based bond broker Cantor Fitzgerald LP. The price of the 3 1/2 percent security due in February 2018 fell 31/32, or $9.69 per $1,000 face amount, to 97 25/32. The yield climbed 9 basis points to 3.86 percent as of 9:19 a.m. in New York.

Yields are up from a low this year of 3.285 percent on Jan. 23, the day after the Fed reduced rates between policy meetings for the first time since the September 2001 terrorist attacks. They will rise to 3.89 percent by year-end, according to the median forecast of 65 economists in a Bloomberg News survey that puts a higher weighting on the most recent estimates.

A separate poll shows growth will likely accelerate to a 2.5 percent annual rate in the final three months of the year from 0.6 percent last quarter.

Past as Prologue

Mortgage refinancing applications soared ninefold between July 2001 and May 2003, according to the Mortgage Bankers trade group in Washington. The yield on the 10-year Treasury rose to 4.65 percent in the following 12 months from 3.37 percent.

The MBA's refinancing index surged to 5,103.60 on Jan. 25, its highest level since June 2003, from 1,620.90 in the week ended Dec. 28, 2007. The average rate on a 30-year fixed loan fell to 5.48 percent on Jan. 24, according to Freddie Mac. That means a homeowner would save $81.40 a month on every $100,000 borrowed now compared with June, when rates rose to 6.74 percent.

The rise in refinancings may be skewed by borrowers submitting multiple applications for loans as bankers tighten lending standards, according to Joseph Mason, an associate professor of finance at Drexel University in Philadelphia.

`Restricting Access'

``I don't see a housing market recovery right now,'' said Mason, 43, who predicts Treasury yields will fall as investors continue to buy the debt as a haven from losses in higher risk markets. ``People can't get a mortgage'' because ``banks are restricting access to credit,'' he said.

Declining property values are also making it harder for a growing number of homeowners to refinance. By year-end as many as 15 million households may owe more on their mortgages than their homes are worth, according to an estimate from Jan Hatzius, chief U.S. economist of New York-based Goldman Sachs Group Inc.

Even so, the drop in rates is helping homeowners with subprime adjustable-rate mortgages. Most of those loans are tied to the six-month London interbank offered rate, which has declined to 2.96 percent from last year's peak of 5.86 percent in September.

The decline in Libor will probably reduce scheduled increases through 2010 in subprime borrowers' payments to 8 percent on average, or $182, according to analysts at Wachovia Corp. in Charlotte, North Carolina. During August, the rise in Libor pointed to increases of 33 percent on average.

 

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U.S. Stocks Rise, Led by Energy Companies; European Shares Gain

(Bloomberg) -- U.S. stocks rose, led by energy and mining companies, after oil gained for the seventh time in eight days and copper climbed to a four-month high.

Exxon Mobil Corp., the biggest U.S. fuel company, and Freeport-McMoRan Copper & Gold Inc., the world's second-largest copper producer, advanced. Wal-Mart Stores Inc., the biggest retailer, increased after fourth-quarter profit topped analysts' estimates. Rallies in raw-materials producers lifted Asia's stock benchmark to a two-week high, while European shares rebounded from earlier losses as insurers rose.

The Standard & Poor's 500 Index added 14.13 points, or 1.1 percent, to 1,364.12 as of 9:41 a.m. in New York. The Dow Jones Industrial Average rose 121.63, or 1 percent, to 12,469.84. The Nasdaq Composite Index gained 22.46, or 1 percent, to 2,344.26. The U.S. market was closed yesterday for Presidents' Day.

``The general earnings picture is quite good,'' said Lincoln Anderson, the Boston-based chief investment officer of LPL Financial Services, which helps oversee about $271 billion. ``U.S. stocks are sort of on sale.''

Fourth-quarter profit for the S&P 500's 412 members that have reported results dropped by an average 19 percent, data compiled by Bloomberg show. Excluding financial companies, earnings climbed 18 percent. The S&P 500 trades at 13.9 times its members' estimated 2008 profit, based on analysts' projections compiled by Bloomberg. Index members last traded at a valuation of less than 14 times historic earnings in 1990.

Weekly Gain

The S&P 500 rose last week for the third time in a month after the biggest jump in oil since November lifted energy producers, and earnings from consumer companies exceeded analysts' estimates.

The MSCI Asia Pacific Index gained 1.6 percent today to a two-week high as Rio Tinto Group said it's seeking a bigger price increase for its iron ore from steelmakers than the 65 percent obtained by a rival.

Europe's Dow Jones Stoxx 600 Index rose 0.9 percent after earlier declining as much as 1.3 percent. A gauge of insurers added 2.1 percent for the biggest gain among 18 industry groups.

 

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Staples in 2.5 bln euro offer for Corp. Express

(Reuters) - U.S. office goods supplier Staples proposed a 7.25 euros per share offer for Dutch peer Corporate Express on Tuesday, valuing the company at around 2.5 billion euros ($3.68 billion).

Ending months of speculation about a possible bid, Staples said its all-cash offer represented a premium of around 67 percent to Corporate Express' closing price of February 4. Shares in Corporate Express jumped 33 percent on the news.

Corporate Express, one of the world's largest office products wholesalers, has been under pressure from hedge funds to put itself up for sale after losses in the United States, its key market. It was not immediately available to comment.

"Staples has high regard for the Corporate Express management team, and believes together our combined companies will create significant opportunities for all stakeholders," said Ron Sargent, Staples chairman and chief executive.

 

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Exxon open to Venezuela talks, ready to fight

(Reuters) - Exxon Mobil (XOM.N: Quote, Profile, Research) is ready to talk to the Venezuelan government to settle a dispute over the forced acquisition of its oilfields, after gaining a court order to freeze $12 billion of Venezuelan assets, a senior executive said on Monday.

But the U.S. oil major said it was also prepared to fight to assert its interests if it has to.

"We have indicated to the Venezuelan government that we're still prepared to talk, but should that not be the case, we'll protect our rights," Robert Olsen, chairman of Exxon Mobil International told Reuters in an interview at the sidelines of the International Petroleum Week conference in London.

Leftist President Hugo Chavez told foreign oil companies last year to cede a majority stake in oil projects or leave the country.

Most agreed and accepted bids for stakes in their projects from state oil company PDVSA, bids that analysts said were below market value.

But Exxon and rival oil major ConocoPhillips (COP.N: Quote, Profile, Research) opted to pull out rather than give in to government demands.

Olsen, who is also head of production for Europe, the Caspian and Russia, told the conference that resource-holding governments should stick to the terms they agree with foreign investors.

 

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Fed's Lower Rates Pressure China to Strengthen Yuan

(Bloomberg) -- Like it or not, China has no choice other than to let the yuan appreciate against the dollar.

The combination of the world's fastest economic growth, the highest inflation rate in 11 years and the rising cost of intervention will force gains in the yuan to accelerate, even as policy makers in Beijing resist calls from the West to let the currency appreciate at a faster pace, say Pacific Investment Management Co. and Pictet & Cie., Switzerland's largest closely held private bank.

Central bankers in Thailand, Malaysia, Singapore and the Philippines are in the same situation, making their currencies attractive, according to money managers at the firms and Merrill Lynch & Co. Nine of the 10 best-performing currencies against the dollar in 2008 will come from Asia, surveys of foreign exchange strategists by Bloomberg show.

``You're likely to see less intervention,'' said Ramin Toloui, who helps oversee more than $60 billion in emerging- market bonds and currencies at Newport Beach, California-based Pimco. ``Several Asian central banks see more rapid exchange- rate appreciation as an important tool to fight inflation.''

After rising 7 percent last year, the yuan has appreciated 1.9 percent to 7.1623 per dollar so far in 2008. New York-based JPMorgan Chase & Co., the world's ninth-biggest currency trader, predicts a further 14 percent increase, while Citigroup Inc. in New York, the third-largest, forecasts a 6 percent advance.

Thailand's baht has climbed 3.7 percent to 32.53 this year, while the Taiwan dollar is up 2.4 percent to NT$31.75. The yuan rose 0.3 percent today, the most in six weeks, and the Singapore dollar gained as much as 0.2 percent to S$1.4107, its highest in more than a decade.

Inflation Battle

While the International Monetary Fund expects growth in Asian emerging markets will slow to 8.6 percent in 2008 from 9.6 percent last year, that's still six times faster than the 1.5 percent expansion predicted for the U.S.

Consumer prices in the region's 10 largest economies outside Japan are rising at an average annual rate of 5.30 percent, compared with 4.10 percent in the U.S., data compiled by Bloomberg show. Faster inflation raises the odds that central banks in Asia will increase interest rates, bolstering the appeal of their currencies.

``We are long Asian currencies,'' said Donald Amstad, head of Asia-Pacific fixed-income at Aberdeen, Scotland-based Aberdeen Asset Management Plc, which oversees $205 billion. ``Asia is in relatively better shape than the rest of the world.'' A ``long'' position is a bet that a currency will gain.

Costly Option

To keep their currencies from appreciating too fast and hurting exporters, Asian central banks have bought U.S. dollars, accumulating $4 trillion in foreign-exchange reserves.

The downside to intervention is that it increases the supply of the local currency, which tends to fuel inflation. To prevent that from happening, Asian central banks typically sell bonds to remove those funds from the economy.

That option has become more costly because interest on the debt is paid with income from its reserves, which are invested in dollar-denominated securities. The People's Bank of China pays 1.31 percentage points more on its six-month bills than it earns on similar-maturity Treasuries following the U.S. Federal Reserve's five rate cuts since September. Six months ago, the spread was 2.2 percentage points in favor of U.S. debt.

 

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Bayer, Onyx Stop Cancer Trial on Higher Death Rate

(Bloomberg) -- Bayer AG, Germany's biggest drugmaker, and U.S. partner Onyx Pharmaceuticals Inc. stopped a late-stage test of their Nexavar cancer drug in lung tumors because of a higher death rate among some of the patients.

 

An independent committee that monitors trials advised the companies that the treatment wouldn't meet the main goal of the test, Leverkusen-based Bayer said today in a statement on PRNewswire.

 

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Best Buy Cuts Forecast, Citing Fourth-Quarter Sales

(Bloomberg) -- Best Buy Co., the largest U.S. consumer electronics chain, cut its full-year earnings forecast to $3.05 to $3.10 a share, saying fourth-quarter revenue will fall short of targets.

The company had previously predicted earnings per share of $3.10 to $3.20 for the year ending March 1, Richfield, Minnesota- based Best Buy said in a statement today. Analysts surveyed by Bloomberg estimated $3.17 a share on average.

``Soft domestic customer traffic in January, coupled with our near-term outlook, now indicate that our fourth-quarter revenue will fall short of our planned targets,'' Chief Executive Officer Brad Anderson said in the statement. ``Our December revenue results were in line with our expectations.''

 

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Comcast, Pressured by Holders, Sets Buyback, Dividend

(Bloomberg) -- Comcast Corp., the cable-TV operator pressured to boost investor returns, said it will buy back $6.9 billion of its stock over two years and pay its first dividend in almost a decade, sending the shares up the most in five years.

Fourth-quarter net income rose 54 percent to $602 million, or 20 cents a share, from $390 million, or 13 cents, a year earlier, Philadelphia-based Comcast said today in a statement. Profit beat the 17-cent average of 17 analysts' estimates compiled by Bloomberg. Sales gained 14 percent to $8.01 billion.

The buyback and annual dividend of 25 cents followed criticism from investors including Chieftain Capital Management Inc., who said Comcast's acquisitions and capital spending were excessive. Last month, Chieftain called for Comcast to reward shareholders and oust Chief Executive Officer Brian Roberts.

``Investors had been looking for a return of cash,'' Sanford C. Bernstein & Co. analyst Craig Moffett said in an interview on Bloomberg Radio. ``That signals confidence from the management that they really do believe that capital intensity is going to fall. We got that this morning in a big share repurchase.''

Moffett, based in New York, rates the stock ``outperform.''

Comcast rose $1.26, or 7.1 percent, to $19.07 at 9:32 a.m. New York time in Nasdaq Stock Market trading, after gaining as much as 7.2 percent, its biggest rise since October 2002. The stock had declined 35 percent in the past year before today.

The company may increase its dividend ``over time,'' co- Chief Financial Officer Michael Angelakis said on a conference call.

 

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UBS Won't Support Failing Auction-Rate Securities

(Bloomberg) -- UBS AG won't buy auction-rate securities that fail to attract enough bidders, joining a growing number of dealers stepping back from the $300 billion market, said a person with direct knowledge of the situation.

The second-biggest underwriter of the securities, whose rates are reset periodically at auctions, notified its 8,200 U.S. brokers of the decision yesterday, said the person, who declined to be identified because the announcement wasn't publicly disclosed. Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Citigroup Inc. allowed auctions to fail as mounting losses from the collapse of subprime mortgages causes capital markets to seize up.

Bank of America Corp. estimated in a report that 80 percent of all auctions of bonds sold by cities, hospitals and student loan agencies were unsuccessful yesterday. That may mean as much as $20 billion of bonds failed to find buyers, based on the $15 billion to $25 billion of auction-rate bonds scheduled for bidding daily, according to Alex Roever, a JPMorgan Chase & Co. fixed income analyst.

``We are kind of in uncharted territory right now,'' said Anne Kritzmire, a managing director for closed-end funds at Nuveen Investments in Chicago.

Auctions are failing as confidence in the creditworthiness of insurers backing the securities wanes, and as loss-plagued banks seek to avoid tying up their capital. More than 129 auctions failed yesterday, Kritzmire said.

Four-Fifths Fail

Rohini Pragasam, a spokeswoman for UBS, the second-biggest underwriter of municipal auction-rate debt after Citigroup in 2006 according to Thomson Financial, declined to comment. UBS, the dealer on the hospital corporation's auction, today posted the biggest-ever loss by a bank for the fourth quarter. The stock declined 2.34 francs ($2.12), or 5.7 percent, to 38.54 francs at 3:18 p.m. in Zurich.

Auction bonds have interest rates determined by bidding that typically occurs every seven, 28 or 35 days. When there aren't enough buyers, the auction fails and bondholders who wanted to sell are left holding the securities. Rates at failed auctions are set at a level spelled out in official statements issued at the initial bond sale.

Investors have little opportunity to judge the risk that auctions will fail because of little public disclosure about interest rates set at the periodic bidding or other details such as how many bids were submitted or how many bonds were offered for sale.

Reporting System Changes

The Municipal Securities Rulemaking board is working on changes to its trade reporting system that would reveal at least the interest rate on auction bonds when they are traded. Currently, only the price is disclosed.

``I think you need to have more transparency in terms of the market so that investors can judge liquidity risks and so that people, both retail investors and corporate investors, can decide where they want to put their money,'' Joseph Fichera, chief executive officer of Saber Partners, a New York based financial adviser to local governments, said in an interview on Bloomberg Television.

Until recently, UBS and other banks that collect fees for running auctions have stepped in with their capital to prevent failures when bidding faltered. These firms have grown unwilling to commit their money to auction-rate securities after suffering at least $133 billion in credit losses and mortgage writedowns stemming from the subprime mortgage collapse.

 

Read more at Bloomberg

Coca-Cola profit rises sharply

(Reuters) - Coca-Cola Co (KO.N: Quote, Profile, Research), the world's largest maker of soft drinks, reported higher-than-expected quarterly profit on Wednesday, helped by higher sales, acquisitions and foreign exchange rates.

Coca-Cola said fourth-quarter net income was $1.21 billion, or 52 cents per share, compared with $678 million, or 29 cents per share, a year ago.

Excluding charges, Coke earned 58 cents per share, topping analysts' average estimate of 55 cents, according to Reuters Estimates.

Net operating revenue rose to $7.33 billion from $5.93 billion a year ago, helped by a 6 percent increase in sales of drink concentrate, the company's main business.

Currency exchange rates boosted revenue 8 percentage points, since the weak dollar versus foreign currencies increases the value of international sales when they are converted to U.S. dollars for inclusion on the company's income statement.

Unit case volume rose 5 percent in the quarter, supported by acquisitions.

Coke, which owns about 35 percent of its bottler Coca-Cola Enterprises Inc (CCE.N: Quote, Profile, Research), saw its year-ago profit impacted by an asset write-down the bottler took related to its North American franchise license.

 

Read more at Reuters

U.S. Stocks Advance for Third Day, Led by Tech, Energy Shares

 (Bloomberg) -- U.S. stocks rose for a third day, the longest stretch of gains in 2008, after increased demand at Applied Materials Inc. spurred a technology rally and energy shares climbed on higher gas-station sales.

Applied Materials, the largest maker of semiconductor- production equipment, advanced the most in four years on a surge in orders for machines that make flat screens. Exxon Mobil Corp. and ConocoPhillips led oil companies higher after the Commerce Department said rising prices at filling stations helped boost retail sales last month. Genentech Inc., the biggest U.S. maker of anti-cancer drugs, rallied the most in a month after its Avastin treatment helped slow the spread of breast tumors.

``The rally could last,'' said Eric Green, who helps manage $5 billion as senior managing partner at Penn Capital Management in Cherry Hill, New Jersey. ``We see the market heading higher.''

The Standard & Poor's 500 Index added 8.71 points, or 0.7 percent, to 1,357.57 at 11:31 a.m. in New York. The Dow Jones Industrial Average gained 89.98, or 0.7 percent, to 12,463.39. The Nasdaq Composite Index increased 31.57, or 1.4 percent, to 2,351.51. About five stocks rose for every two that fell on the New York Stock Exchange. European and Asian benchmarks dropped.

Applied Materials' report of increasing demand spurred speculation that technology companies' earnings will withstand an economic slowdown sparked by the collapse of the subprime mortgage market. The S&P 500 Information Technology Index has lost 14 percent this year, the worst performance among 10 industries.

Applied Materials

Applied Materials rose $1.26, or 7 percent, to $19.33. The company said orders for machines that make flat screens will rise as much as 5 percent this quarter, exceeding some analysts' estimates.

A gauge of computer-chip makers gained 1.8 percent, the second most among 24 industries in the S&P 500, led by Applied Materials, its third-biggest member.

Exxon, the largest U.S. crude producer, climbed $1.16 to $85.54. ConocoPhillips, the third-biggest, rallied 98 cents to $77.38. Energy companies in the S&P 500 climbed 1.4 percent even as oil for March delivery fell 44 cents to $92.34 a barrel in New York.

Filling station sales rose 2 percent in January after remaining unchanged the prior month, the Commerce Department said, as regular gasoline rose as high as $3.11 a gallon in early January. Total retail sales climbed 0.3 percent, compared with economists' forecast for a drop of 0.3 percent. Excluding gas, purchases rose 0.1 percent last month, the Commerce Department said.

Retailers in the S&P 500 fell 0.2 percent as a group after the report.

Genentech Rallies

Genentech added $1.46 to $71.38. The results were from a trial called Avado, which included patients who took Avastin with docetaxel chemotherapy.

Industrial companies also rose, led by Rockwell Automation Inc., the world's largest maker of factory controls, after the report on purchases by consumers bolstered confidence in the sagging economy. Rockwell increased $2.02, or 3.6 percent, to $57.60.

Deere & Co., the world's largest maker of farm tractors and combines, fell 97 cents, or 1.1 percent, to $85.51. Deere's comments that the U.S. housing slump will maintain ``continued pressure'' on sales of construction and forestry equipment overshadowed its increased annual forecast and first-quarter earnings surge.

A survey of Bloomberg users showed benchmarks for the world's biggest stock markets probably will fall for the next six months as economic growth slows, and investors are the most pessimistic in the U.S. and the U.K.

 

Read more at Bloomberg

Adcock boss suspended

(Fin24) - Consumer goods giant Tiger Brands says it will be extending its independent investigation into collusion allegations in its healthcaredivision into all its businesses.

"We will extend this investigation into every single business that we areinvolved in," Tiger Brands' non-executivechairperson Lex van Vught said ina statement.

"We are determined to find and root out any anti-competitive
or collusive practices," he said.

Also, the managing executive of Adcock Ingram Critical Care, Arthur Barnett,has been suspended by the board pending the conclusion of the independentinvestigation.

Van Vught said the company was "devastated" at the allegations.
 

Read more at Fin24

Rand regroups, gains nearly 1%

(Fin24) - The rand currency strengthened nearly one percent against the dollar and bonds also firmed, regrouping after a sharp fall over the past two weeks, as emerging market sentiment improved and stocks recovered further.

The local currency was trading at R7.71 to the dollar at 17:44 GMT, 0.9% stronger than its previous close in New York, after see-sawing between R7.6775 and R7.82 during the session.

Government bonds tracked the rand's move in relatively light trade, pulling back some of their sizable losses sparked by investor concern over an expected easing in economic growth.

Dealers said trade was largely flow-driven with dollar buying out of London early in the day paring gains before it drifted back on higher stocks and broader emerging market gains as those flows waned.

"Emerging markets are stronger, the dollar is weaker against the euro and local stocks are up on the Dow (Jones index) and we are just picking up that on the currency," ABN AMRO trader Paul Peter said.

"The slight correction today is on the back of the euro, the
JSE."
 

 

Read more at Fin24

Conservationists battle coal firm

(Fin24) - A legal battle is brewing between conservationists and coal exploration company DMC Coal Mining over its plans to prospect for anthracite and torbanite in one of South Africa's most important regions for rare and endangered birds.

DMC Coal Mining has obtained prospecting rights to two properties in the Wakkerstroom region in south-eastern Mpumalanga and is also attempting to get prospecting rights over a further two properties.

This region had been previously examined by another coal exploration group - Keaton Energy - which decided not to apply for prospecting rights because of the sensitivity of the area.

DMC Coal Mining's plans are now being opposed by a number of environmental organisations including Birdlife South Africa, the Wildlife and Environment Society of South Africa, WWF-SA, the Endangered Wildlife Trust and the Ekangala Grassland Trust.

Reason is the region's importance as grassland and wetland habitat hosting a number of rare and endangered birds including Wattled Crane, Rudd's Lark, Botha's Lark and Blue Crane.
 

 

Read more at Fin24

AIG Credit-Default Swap Losses Won't Be `Material'

(Bloomberg) -- American International Group Inc., the world's largest insurer by assets, said ``over time'' it may recoup losses in assets that declined by $4.88 billion in value in October and November.

Any losses by the unit that issues so-called credit-default swaps won't be material to AIG, the firm said today in a statement. AIG rebounded in New York trading after falling the most in two decades yesterday on disclosure that writedowns from the contracts, sold to protect fixed-income investors, were four times bigger than a previous estimate.

Chief Executive Officer Martin Sullivan, who manages units that originate, insure and invest in subprime mortgages or securities, assured investors in December that writedowns tied to the U.S. housing market were ``manageable.'' The company, based in New York, has said it doesn't expect to sell mortgage- related investments at a loss when markets are weak.

While AIG ``may have illustrated questionable judgment'' in its accounting lapse, it ``does not necessarily increase the probability of real economic impairment'' on assets held to maturity, said Mark Lane, analyst at William Blair & Co. in Chicago, today in a research note. He rates the company ``outperform.''

AIG advanced $1.45, or 3.2 percent, to $46.19 at 12:48 p.m. in New York Stock Exchange composite trading. The company has lost about 33 percent in the past 12 months, trailing the 5.7 percent decline of the Standard & Poor's 500 Index.

`Solid Upside'

``For patient investors willing to ride out near-term volatility, we see solid upside in the stock,'' said Morgan Stanley analyst Nigel Dally in a note to investors today. He rates the company ``overweight.''

The insurer's financial products unit issues contracts that promise to reimburse investors for losses tied to $505.5 billion of securities as of Nov. 25, including corporate debt, European mortgages and collateralized debt obligations, which bundle together loans.

AIG's independent auditor PricewaterhouseCoopers LLP found a ``material weakness'' in the company's accounting for the contracts, AIG said yesterday, and the insurer didn't know what they were worth at the end of 2007.

 

Read more at Bloomberg

U.S. Stocks Rise After Buffett Offers to Help Bond Insurers

(Bloomberg) -- U.S. stocks rose for a second day, led by financial shares, on expectations Warren Buffett, the world's No. 1 investor, will help calm credit markets by offering to shore up bond insurers' finances.

Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co., the three largest U.S. banks, climbed after Buffett said he's willing to take on $800 billion in municipal bond obligations in an interview with CNBC. Monsanto Co., the world's biggest seed producer, advanced for a third day on an increased profit forecast.

The Standard & Poor's 500 Index added 13.99 points, or 1 percent, to 1,353.12 at 12:29 p.m. in New York. The Dow Jones Industrial Average advanced 162.99, or 1.3 percent, to 12,403. The Nasdaq Composite Index climbed 15.24, or 0.7 percent, to 2,335.3. More than three stocks rose for every one that fell on the New York Stock Exchange. Shares in Europe and Asia also gained.

``It's another potential solution to some of the credit problems,'' Mark Bronzo, who helps manage $11 billion at Security Global Investors in Irvington, New York, said of Buffett's offer. ``That's why the markets are responding well.''

Concern that bond insurers don't have enough money to pay claims on the $2.4 trillion in assets they guarantee has contributed to a 7.4 percent drop in S&P 500 financial shares in 2008. MBIA Inc., the largest bond insurer, lost 80 percent of its value in the last year before today, and smaller rival Ambac Financial Group Inc. slumped 88 percent, on concern that the companies will lose their AAA credit ratings.

Buffett's Offer

Citigroup added 73 cents to $26.54. Bank of America rallied 66 cents to $42.80. JPMorgan climbed 46 cents to $43.81. Bear Stearns Cos., the fifth-biggest U.S. securities firm, increased 49 cents to $80.25.

Buffett said he offered to take on the municipal-bond liabilities of MBIA, Ambac Financial and FGIC Corp. Buffett's Berkshire Hathaway Inc. would provide so-called reinsurance for the debt, he said in an interview with CNBC television.

One company turned down the offer and the two others haven't responded, Buffett, chairman of Berkshire Hathaway Inc., told CNBC.

MBIA slipped 79 cents to $12.79. Ambac lost 29 cents to $10.19. Buffett's offer doesn't include the insurers' subprime- related obligations.

'Project Lifeline'

Financial shares also climbed on plans to help delinquent homeowners avoid foreclosure. Bank of America, Citigroup and four other U.S. lenders announced a plan to offer a 30-day freeze on home foreclosures while loan modifications are considered. Treasury Secretary Henry Paulson and U.S. Housing and Urban Development Secretary Alphonso Jackson said today at a news conference in Washington that ``Project Lifeline'' would help stabilize communities disrupted by mortgage defaults.

Monsanto rallied $3.27, or 2.9 percent, to $117.30 after raising its 2008 profit forecast on higher demand for weed killer and genetically modified corn and soybeans. Profit in the year ending Aug. 31 will increase to $2.70 to $2.80 a share, 20 cents above the range of a Jan. 3 forecast.

Schlumberger Ltd. advanced $2.57 to $83.06 after Bear Stearns raised its recommendation on the world's largest oilfield-services provider to ``outperform'' from ``peer perform,'' saying the company's offshore drilling and exploration make it ``well positioned for the next phase of the oilfield service business cycle.''

Schering-Plough

Schering-Plough Corp. gained $1.16 to $21.78. The maker of Vytorin and Zetia cholesterol pills reported fourth-quarter profit, excluding some items, of 52 cents a share, beating the 27-cent average estimate of 17 analysts surveyed by Bloomberg.

General Motors Corp., the world's largest automaker, gained after reporting an adjusted fourth-quarter profit, not counting costs and gains the company considers one-time items, of 8 cents a share. On that basis, analysts estimated a loss of 64 cents. GM's net loss in the quarter was $722 million.

The Russell 2000 Index, a benchmark for companies with a median market value of $589 million, gained 9.80, or 1.4 percent, to 709.55, led by GMH Communities Trust. The provider of housing to students and the military surged the most since its initial public offering in 2004 after agreeing to be bought in two transactions for a total of $787 million. GMH added $3.13, or 56 percent, to $8.72.

NxStage Medical Inc. fell the most since its 2005 initial public offering, dropping $3.30, or 26 percent, to $9.45. The maker of portable dialysis systems said it expects a loss of as much as $1.52 a share in 2008, wider than the $1.06 loss estimated by analysts in a Bloomberg survey.

World Wrestling Entertainment

World Wrestling Entertainment Inc. climbed $1.16, or 7.6 percent, to $16.47. The producer of television's ``WWE Friday Night SmackDown'' reported fourth-quarter revenue and profit that was higher than the average analyst estimate as video sales and ticket prices increased.

 

Read more at Bloomberg

Eskom's buyback plan in motion

(Fin24) - State-owned power utility Eskom is negotiating to buy electricity from local industrial firms in a bid to solve an energy crisis, Public Enterprises Minister Alec Erwin said on Monday.

Eskom is under pressure to come up with a plan to increase power generation after weeks of rolling blackouts that have darkened millions of homes and forced businesses to shut. Large mining operations ground to a halt for five days last month.

"Large producers who would not normally want to be in electricity are now considering that there may be merit in them going into electricity production and selling to Eskom," Erwin told a media briefing in Cape Town.

Erwin told Reuters government was talking with Sasol, BHP Billiton and Anglo as it sought to boost power capacity.

"Clearly we are interested in that ... given the strictures on energy and the difficulties we have ... This opens an interesting possibility. We are in intensive negotiations now," Erwin said.

President Thabo Mbeki expressed confidence on Friday that the crisis would be solved quickly but did not give details of the
government's plan. There have been calls from media and opposition parties for him to sack several ministers.

Mbeki and other senior officials have blamed the country's booming economy for increasing demand for electricity, while acknowledging that warnings of such a problem went unheeded for years.
 

Read more at Fin24

BNP Paribas not planning SocGen bid: source

(Reuters) - French bank BNP Paribas (BNPP.PA: Quote, Profile, Research) is not preparing a hostile takeover bid for embattled rival Societe Generale (SOGN.PA: Quote, Profile, Research) but could be interested in a friendly deal, a source familiar with the bank's thinking said on Monday.

 

A French financial newsletter report on Monday that BNP was preparing a 93-euros-a-share offer for SocGen was "total rubbish", the source said.

 

Read more at Reuters

Yahoo rejects Microsoft's bid

 (Reuters) - Yahoo Inc (YHOO.O: Quote, Profile, Research) on Monday rejected Microsoft Corp's (MSFT.O: Quote, Profile, Research) unsolicited takeover bid, currently valued at $42 billion, as too low, saying its board had unanimously concluded it was not in the best interests of shareholders.

In a statement, Yahoo said the offer "substantially undervalues" the company.

Microsoft made the half-stock, half-cash offer on February 1. It was originally worth $44.6 billion or $31 per share -- a 62 percent premium to Yahoo's stock price. Since then, Microsoft shares have fallen and the deal is now worth $41.8 billion.

 

Read more at Reuters

Yang's $2 Blackjack Limit, EBay Failure Leave Yahoo Unprepared

(Bloomberg) -- Fourteen years after publishing his first guide to the Internet from a Stanford University trailer, Jerry Yang isn't ready to see his creation absorbed by the world's largest software company.

Yahoo! Inc.'s 39-year-old co-founder survived the dot-com bust and weathered failed efforts to challenge EBay Inc. in online auctions and Google Inc. in Web searches. He and the board plan to reject Microsoft Corp.'s $44.6 billion bid today, a person familiar with the decision said, leaving Yang to battle to keep his Sunnyvale, California-based company independent.

While the offer lifted Yang's net worth by more than a half-billion dollars, money means little to Yang, former executives say. He spent his career building the most-visited U.S. Web site. Yang took his first crack at being chief executive officer in June, aiming to reclaim the company's dominance on the Internet.

``It's his baby,'' said Steve Mitgang, a Yahoo senior vice president who left last year to run Web TV company Veoh Networks Inc. in San Diego. ``He wants to win, and he wants to fight to win.''

The board spent a week reviewing the $31-per-share offer before deciding it was too low, said the person, who declined to be identified because the discussions aren't public. Yahoo wants at least $40, the Wall Street Journal reported this weekend.

Yahoo spokeswoman Diana Wong said over the weekend the company doesn't comment on rumors or speculation. Microsoft spokesman Bill Cox declined to comment.

In rejecting the offer, Yang confronts Microsoft CEO Steve Ballmer and Yahoo investors whose stock tumbled by half in the past two years. Redmond, Washington-based Microsoft's $31-a- share offer on Feb. 1 was 62 percent higher than Yahoo's price before.

`Uncouth' Name

In an e-mail to his 14,000 employees last week, Yang said Yahoo was weighing its options. Analysts including Gartner Inc.'s Andrew Frank in New York said alternatives like linking up with Google or News Corp. won't work. Investors like Firsthand Capital Management's Kevin Landis said Microsoft made a ``fair offer.''

Born in Taiwan, Yang was brought to the U.S. when he was 10. He worked in the Stanford library to help fund his undergraduate education.

Yang and David Filo cooked up what became Yahoo in 1994 as graduate students. ``Jerry and David's Guide to the World Wide Web,'' used to keep track of their interests on the Internet, became a popular Web page in Silicon Valley. By the end of 1994, the site got more than 1 million hits a day.

Venture capital firm Sequoia Capital invested $2 million to help the duo build Yahoo, a name they picked because of its definition: ``rude, unsophisticated, uncouth.''

``He cares deeply about the thing he created in that trailer with Filo,'' said Rob Solomon, who worked at Yahoo for six years and is now CEO of the travel site SideStep Inc. in Santa Clara, California. ``They thought they could build a really big, new type of company, and they did.''

Too Rich

Yang wasn't available to comment, said spokeswoman Tracy Schmaler. Filo, responsible for the technical aspects of Yahoo's biggest sites, also wasn't available.

After Yahoo's initial public offering in 1996, sales jumped from $20 million to more than $1 billion in 2000 as advertisers rushed to tap the Internet's popularity. Yang and Filo were each worth more than $4 billion, according to Forbes magazine.

Wealth didn't turn Yang into a big spender, said John Cecil, a former Yahoo salesman. At a Las Vegas conference in 1998, the two were playing blackjack with Yahoo employees. Yang refused to bet more than $2 a hand, Cecil said.

``He said, `It's too rich for my blood,''' said Cecil, now president of the online ad company Innovate Media in Costa Mesa, California.

EBay Wins

Three years of surging sales lifted Yahoo's value past $100 billion, then the technology market crashed, wiping out 97 percent of Yahoo's worth. While the collapse sent Pets.com Inc. and Webvan Group Inc. into bankruptcy, Yahoo survived and began growing again in 2002.

Bigger competitors were emerging, crimping Yahoo's ability to expand beyond selling banner ads on Web pages. San Jose, California-based EBay became the dominant auction site. Google's search engine was pulling ad spending to a business that Yahoo lacked.

Solomon, 41, who ran the auction business, told Yang that Yahoo would be better suited investing elsewhere.

``The auction wars were won, and he didn't want to give up,'' Solomon said. ``That's not him being obstinate. It's him pushing us to come back with creative solutions and being tough.'' Yahoo closed the auction site last year.

 

Read more at Bloomberg

Europe's Economy May Stay Sick Longer After Catching U.S. Cold

(Bloomberg) -- Europe's economy has caught the U.S.'s cold, and may be sick longer.

Persistent inflation and budget deficits may prevent policy makers in the 15 nations that share the euro from moving as aggressively as their U.S. counterparts to cut interest rates and taxes. Meanwhile, Europe's labor laws will make it harder for companies to speed a recovery in profits by reducing payrolls.

``A European downturn will take noticeably longer to run its course than the U.S. one,'' Nobel laureate Edmund Phelps, an economics professor at Columbia University in New York, said in an interview.

Next year ``might be a period of `reverse decoupling,' with the U.S. economy enjoying a sharp recovery and the euro-area economy stagnating,'' says Dario Perkins, senior European economist for ABN Amro Holding NV in London. ``A relatively inflexible economy and `sticky' inflation'' will hold Europe back, he says.

European Central Bank President Jean-Claude Trichet said twice last week that there is ``unusually high uncertainty'' about growth amid signs that Europe's resistance to the U.S. slowdown is finally wearing off.

``Risks are on the downside,'' he told reporters in Tokyo on Feb. 9 after a meeting of central bankers and finance ministers from the Group of Seven industrialized nations. The G- 7 officials said the U.S. economy may slow further, eroding global growth, and forecast no end to financial-market turmoil.

``Europe cannot go unscathed from the U.S.'s credit crisis,'' says Phelps.

Slower Growth

December retail sales in the euro region fell the most since 1995 and service industries grew in January at the slowest pace in more than four years. The European Union's statistics office will report Feb. 14 that the economy expanded 0.4 percent in the fourth quarter, half the pace of the previous three months, according to the median forecast of economists surveyed by Bloomberg News.

``Euro-zone growth is in trouble, and the risk of recession at some stage should not be underplayed,'' says David Brown, chief European economist at Bear Stearns International in London. He says the region will be ``very lucky'' to expand 1.5 percent this year, which would be the weakest since 2003.

Much of what ails Europe has its origins across the Atlantic. Borrowing costs for consumers and companies jumped as BNP Paribas SA and other European banks ran up losses on investments tied to U.S. mortgages. Exporters such as Heidelberg, Germany-based Heidelberger Druckmaschinen AG, the world's largest maker of printing machines, blame declines in the dollar and U.S. demand for hurting profits.

Short, Shallow Recession

Economists Jan Hatzius at Goldman Sachs Group Inc. and Richard Berner of Morgan Stanley say the U.S. economy is already in a recession, and they predict that action by policy makers will ensure it is short and shallow.

Federal Reserve Chairman Ben S. Bernanke and his colleagues have cut interest rates five times in less than five months by a total of 2.25 percentage points. Congress last week passed an economic-stimulus package worth about $168 billion.

European policy makers have been slower to administer medicine. The ECB has left its benchmark unchanged at 4 percent for eight months as inflation accelerated to the highest level in 14 years and workers sought more pay in response.

While Trichet last week signaled that he's open to cutting interest rates for the first time in almost five years, he also said he doesn't anticipate inflation will moderate until the second half of the year. Consequently, while investors increased bets on rate cuts last week, they don't expect the ECB to start easing credit before the second quarter.

Delayed Response

Trichet's ``somewhat delayed and gradual policy response'' means the euro-area economy will lag behind the U.S., growing just 1.4 percent this year and 1.6 percent in 2009, compared with 1.9 percent and 3 percent for the U.S., says Janet Henry, chief European economist at HSBC Holdings Plc in London.

Few economists yet anticipate a recession in Europe. Potential housing busts are limited to a few countries, unemployment is at a record low and demand from emerging markets offsets a decline in trade with the U.S.

Inflation still may not retreat fast enough for the ECB to continue cutting as the Fed has. Price pressures persist longer in Europe than in the U.S. for several reasons. Competition among businesses is weaker, and employers have less flexibility on wages because of regulations that set minimum levels or tie worker pay to past inflation rates. German unions are still seeking above-inflation pay agreements.

 

Read more at Bloomberg

GM Proves Demise to No. 2 Premature on Topping Toyota Overseas

(Bloomberg) -- Investors doubting General Motors Corp.'s comeback after a third straight annual loss should count the 2,500 crates of partially built Chevrolets leaving South Korea every day for plants in Poland and China.

With about six of every 10 new GM vehicles now sold overseas as U.S. production shrinks, the Detroit-based company fended off Toyota Motor Corp. last year and preserved its 77- year reign as the world's biggest automaker. Rising output abroad and a cost-saving labor contract may push profit to $12.75 a share by 2010, said Burnham Securities Inc. analyst David Healy.

 

Read more at Bloomberg

Regulators should allow bond insurers to fail: Ackman

(Reuters) - Bill Ackman, whose hedge fund has been betting against bond insurers since at least 2002, said in a letter to U.S. regulators that rescuing the bond insurers will only prolong the credit crisis, and the companies should instead be allowed to fail.

In the letter obtained by Reuters, Ackman said bond insurers in recent years have become a means for banks to avoid reporting their full credit exposure and make their capital ratios appear stronger, but that banks should be forced to own up to their full credit risk.

"(W)e understand that the banking industry counterparties to the bond insurers would prefer to avoid taking these ... risks back on balance sheet -- particularly at a time when their balance sheets are strained by subprime and other losses that have not been hedged," Ackman wrote, adding that "there are no such free lunches available in the capital markets."

Bond insurers have in turn been critical of Ackman and other investors betting against the companies. On a recent conference call, MBIA Inc (MBI.N: Quote, Profile, Research) Chief Executive Gary Dunton railed against "the fear mongering and intentional distortions of facts about our business that have been pumped into the market by self-interested parties."

New York State Superintendent Eric Dinallo is working with banks to rescue bond insurers including Ambac Financial Group Inc (ABK.N: Quote, Profile, Research) and FGIC Corp, which face billions of dollars of potential losses after guaranteeing bonds linked to risky subprime mortgages and other debt.

 

Read more at Reuters

Retailers struggle through dismal January

(Reuters) - Consumers held on to their cash and gift cards longer than usual and ignored widespread discounting in January, resulting in disappointing sales at many retailers, most notably industry leader Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research).

The world's largest retailer reported a 0.5 percent rise in January same-store sales, falling short of the 2 percent rise that analysts expected. Target Corp (TGT.N: Quote, Profile, Research), the No. 2 U.S. retailer posted a 1.1 percent drop in same-store sales, deeper than the 0.4 percent fall expected by Wall Street.

Wal-Mart said gift-card redemptions fell short of expectations, as consumers held on longer to their gift cards. Those who did, used gift cards for necessities like food and consumables, instead of higher margin discretionary items, the company said.

Reflecting the weakening economy and the tendency to trade down in tough times, warehouse retailers Costco Wholesale Corp (COST.O: Quote, Profile, Research) and BJ's Wholesale Club (BJ.N: Quote, Profile, Research) both reported better-than-expected January sales, boosted by the demand for gasoline. Costco also cited strength in its deli, candy, small appliance and automotive businesses.

January's sales data follow a disappointing holiday season for retailers and come amid mounting fears that the U.S. economy could be tipping into recession, as consumers faced with higher fuel and food costs and a crumbling housing markets cut back on spending.

"January has been no different," said Ken Perkins, president of research firm Retail Metrics in a note on Wednesday. "Given the difficult economic backdrop retailers/ consumers are facing, expectations have still been pared to lower levels despite starting out at very modest initial projections."

 

Read more at Reuters

Pending Sales of Existing U.S. Homes Fell 1.5% in December

(Bloomberg) -- The number of Americans signing contracts to buy previously owned homes fell in December for a second straight month, signaling the worst housing slump in 25 years will persist well into 2008.

The National Association of Realtors' index of signed purchase agreements decreased 1.5 percent to 85.9, the group said today. The drop follows a revised 3 percent decline for November that was larger than previously reported.

Today's report reinforces concern that the housing recession will linger as foreclosures add to a glut of unsold homes. The housing slump is weighing on the job market and consumer spending, putting pressure on Federal Reserve policy makers to lowering interest rates further to keep the economy out of a recession.

``The housing outlook has deteriorated significantly and I don't see a bottom on sales and starts until the middle of the year at the earliest,'' Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis, said before the report. ``And our outlook on home prices has gotten worse.''

Economists had forecast the index would fall 1 percent, according to the median of 33 estimates in a Bloomberg News survey. Projections ranged from a drop of 3 percent to an increase of 1.8 percent.

Compared with a year earlier, the measure was down 24.2 percent.

Forecast Lowered

The Realtors lowered their forecast for existing-home sales in 2008 to 5.38 million from a January forecast of 5.7 million. Last year, 5.65 million homes were sold. Purchases of new homes will decline to 637,000 from 774,000, the group said today.

Pending resales fell in three of four regions. Purchases decreased 3.1 percent in the West, 3 percent in the South and 1.7 percent in the Northeast. They rose 3.4 percent in the Midwest.

The real-estate agents' group began reporting pending home resales in March 2005 and has supplied historical data back to February 2001. The gauge is considered a leading indicator because it tracks contract signings. The Realtors reported Jan. 24 that existing-home purchases, which are compiled from closings, fell 2.2 percent in December, more than economists had forecast.

New-Home Sales

Another leading indicator of the housing market, new-home sales, fell in December to a 12-year low, according to Commerce Department statistics. New home sales also are recorded when a contract is signed.

Homebuilder Pulte Homes Inc. said Jan. 30 that it had its fifth consecutive quarterly loss in the fourth quarter because of falling sales. Chief Executive Officer Richard Dugas forecast there will be a net loss from continuing operations, excluding potential land charges and tax benefits, this quarter.

``Sales levels are still depressed as compared to prior periods,'' even though the company has lowered prices, Dugas said on a conference call on Jan. 31.

Builders have little incentive to start new projects until they see inventories of unsold homes coming down. Both new and existing homes had a 9.6 months supply on the market in December.

 

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Sales at U.S. Retailers Languish on Recession Concern

(Bloomberg) -- Sales at U.S. retailers languished in January as discounts failed to lure consumers concerned that a recession is coming. Macy's Inc. and Nordstrom Inc. reported declines, while sales at Wal-Mart Stores Inc. rose less than analysts estimated.

Sales at stores open at least a year gained 0.5 percent at Wal-Mart, the retailer said today, as winter storms hurt sales in the Midwest and fewer customers redeemed gift cards. Limited Brands Inc. and Target Corp. also reported declines larger than analysts predicted.

Department stores and mall-based shops slashed prices on clothing and bedding to attract customers following the slowest holiday season since 2002. Consumers refrained from spending as median home values probably fell for the first time since the Great Depression and employers cut back on hiring.

``You're seeing the continuing unfolding of the consumer spending slowdown,'' said Ken Perkins, president of Retail Metrics LLC, a Swampscott, Massachusetts-based research firm. ``Clearance sales were widespread, there were certainly enough incentives to draw the consumer in under normal economic circumstances, but consumers are hunkering down.''

Department stores have been hit hard by a decline in customer visits to malls and a lack of new products that excite consumers, Perkins said. Nordstrom's sales sank 6.6 percent. Analysts surveyed by Retail Metrics expected a 0.4 percent decline.

Macy's, the second-biggest U.S. department-store chain, said yesterday that January same-store sales dropped 7.1 percent, cut its fourth-quarter profit forecast and said it will eliminate 2,300 jobs. Kohl's, the fourth-largest U.S. department-store chain, said same-store sales fell 8.3 percent, worse than the estimate for a 7.9 percent drop.

Share Performance

Wal-Mart, the world's largest retailer, rose 7 cents to $48.90 at 9:41 a.m. in composite trading at the New York Stock Exchange. The Standard & Poor's 500 Retailing Index of 31 members rose 2.3 percent. It has slumped 5.1 percent this year before today compared with a 9.7 percent decline by the broader S&P 500.

January sales at U.S. retailers probably were unchanged, the International Council of Shopping Centers said on Feb. 5. That would be the first month without a gain since last April.

Last month will probably turn out to be the worst January performance on record, said Michael Niemira, the New York-based trade group's chief economist. The ICSC surveys almost 60 chains and will report figures later today.

Same-store sales are seen as a key gauge of a retailer's performance because they exclude locations that have recently opened or closed.

Limited Brands

Sales dropped 8 percent at Limited Brands, owner of the Victoria's Secret chain. The sales decrease exceeded the average analyst estimate for a decline of 7.1 percent. American Eagle Outfitters Inc. said yesterday that same-store sales fell 7 percent.

Wal-Mart had predicted a January same-store sales gain of 2 percent, the same as the average Retail Metrics estimate.

Target Corp., the second-largest U.S. discount chain, reported a 1.1 percent decline. It had said Jan. 21 it expected January sales to be ``near the low end'' of its forecast range of a 1 percent decrease to a 1 percent gain.

Other retailers performed better than analysts expected.

Children's Place Retail Stores Inc. reported a 6 percent same-store sales increase, ahead of the 3.6 percent estimated gain. AnnTaylor Stores Corp., a women's clothing retailer, said sales were unchanged from a year earlier, better than the estimated 3.7 percent decline. Chief Executive Officer Kay Krill said in the statement it was ``promotionally aggressive'' to clear inventory.

 

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Trichet Sees `Unusually High Uncertainty' on Growth

(Bloomberg) -- European Central Bank President Jean- Claude Trichet signaled that risks to euro-region economic growth are increasing, prompting investors to raise bets on interest-rate cuts.

``As the reappraisal of risk in financial markets continues, there remains unusually high uncertainty about its overall impact on the real economy,'' Trichet said at a press conference in Frankfurt today after the ECB kept its key rate at 4 percent. ``We will continue to monitor very closely all developments over the coming weeks.''

The ECB has kept borrowing costs at a six-year high, declining to follow counterparts in the U.S. and Great Britain by cutting borrowing costs as it seeks to contain inflation in the 15 euro nations. Investors predict that a slowing economy will prompt the ECB to reduce its key interest rate.

``There is a greater acknowledgment that risks to growth are on the downside,'' said David Owen, chief European economist at Dresdner Kleinwort in London. ``The ECB's not going to cut in next couple of months, but it is starting to prepare the markets for rate reductions.''

The euro weakened 0.8 percent to $1.4521 at 3:21 p.m. in Frankfurt and the yield on 10-year German bunds fell 5 basis points to 3.85 percent.

Growth Forecasts

The ECB on Dec. 6 projected the euro-region economy to expand about 2 percent this year after 2.6 percent in 2007. Trichet said today that latest data confirmed the bank's assessment that ``risks surrounding the economic outlook lie on the downside.''

The International Monetary Fund on Jan. 29 cut its 2008 euro-region growth estimate by half a point to 1.6 percent, saying that ``no one is going to be exempt from some slowdown.'' The Washington-based fund also trimmed its growth estimates for the U.S. and Japan, the world's two largest economies.

Stock markets have dropped this year on concern the U.S. economy is sliding into a recession, curbing earnings growth. Germany's benchmark DAX Index has lost 16 percent this year and the Dow Jones Stoxx 600 Index 12 percent.

The Bank of England today cut interest rates for the second time in three months, lowering the benchmark by a quarter point to 5.25 percent. The Fed last month lowered its rate by 1.25 percentage points in two reductions to 3 percent.

 

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BHP Falls After Raising Rio Offer to $147 Billion

(Bloomberg) -- BHP Billiton Ltd., the world's largest mining company, tumbled in London trading after raising its hostile bid for Rio Tinto Group to $147 billion and reporting the first drop in profit in more than five years.

BHP declined as much as 6.4 percent in London and fell the most in 20 years in Sydney after increasing its offer 13 percent to 3.4 shares for every one of Rio Tinto's. The Melbourne-based company reported today its fiscal first-half net income unexpectedly slipped 2.4 percent to $6 billion, citing higher production costs and lower prices for some metals.

Chief Executive Officer Marius Kloppers sweetened the bid five days after Aluminum Corp. of China, China's biggest aluminum company, bought a stake in Rio to block the takeover. The combination of BHP and Rio, the world's largest mining industry takeover, would cut operating costs in Western Australia and vie with Brazil's Cia. Vale do Rio Doce as the world's largest supplier of iron ore.

``BHP would not have been surprised by the emergence of the Chinese, but it has forced them to indicate they're serious about pursuing this deal,'' said Richard Dennis, a fund manager at Bournemouth, U.K.-based Wessex Asset Management, which has $490 million invested in natural-resource stocks. ``There will be another bid to come from BHP if they are to get final acceptance.''

BHP dropped as much as 102 pence to 1,495 pence, the biggest slide in more than two weeks, and was 4.6 percent lower at 1,523 pence as of 11:28 a.m. on the London Stock Exchange. Earlier it slumped 7.5 percent on the Australian Stock Exchange, the biggest decline since December 1987, amid a plunge in Asian stocks.

`Ratio Makes Sense'

Rio fell 14 pence, or 0.3 percent, to 5,420 pence in London. The shares traded at a premium of 2.7 percent over the value of the bid, based on BHP's current share price. Aluminum Corp. of China Ltd., or Chalco, Chinalco's publicly traded unit, declined as much as 12 percent in Hong Kong trading.

State-owned Chinalco and Alcoa Inc. paid 6,000 pence ($117.85) a share for a 9 percent stake in Rio last week. That equated to 4.1 BHP shares for every one of Rio's London shares compared with BHP's initial three-for-one offer.

``Rio should be having a discussion,'' Don Williams, who helps manage $1.3 billion at Platypus Asset Management, said by phone from Sydney today. He sold half of Platypus's Rio holding on Feb. 4 after the Chinalco and Alcoa transaction. ``This ratio makes sense.''

BHP's bid values Rio at 13.6 times earnings before interest and tax, compared with the 13.7 times that Rio paid for Alcan Inc. last year.

Moody's Investors Service may cut BHP's fifth-highest investment-grade ranking of A1 following the offer, the credit assessor said in a statement. Standard & Poor's today affirmed BHP's rating and said the outlook was ``negative.''

Debt Risk

The risk of BHP and Rio defaulting on their debt, as measured using credit-default swaps, increased to records. Contracts on the BHP bonds, which rise as perceptions of credit quality deteriorate, gained 17.5 basis points to a record 110 basis points at 5:18 p.m. in Sydney.

BHP's debt will increase almost seven times to about $85 billion should the takeover proceed, said Anita Yadav, head of credit and hybrid research at UBS AG in Sydney.

Credit-default swaps on Rio Tinto's debt increased 10 basis points to 110 basis points. The price means it costs $110,000 to protect $10 million of debt from default for five years.

BHP, which made an initial approach in November, had until today to formalize its offer or walk away for six months after a U.K. Takeover Panel ruling.

Possible Counter Bid

Chinalco may be preparing a counter bid, the London-based Times newspaper said, citing unidentified people. Lu Youqing, vice president of Chinalco, wouldn't comment on the newspaper report when contacted by telephone. Chinalco and Alcoa said in a statement today they will ``closely monitor further developments.''

``What BHP faces is not just a state-owned company, but a country,'' Geoffrey Cheng, a Hong Kong-based mining analyst with Daiwa Institute of Research (HK) Ltd., said by telephone. ``I don't think Chinalco will make a general offer for Rio Tinto as it may face many regulatory hurdles.''

China needs raw materials to feed an economy that grew 11.4 percent in 2007, the fastest in 13 years. The nation's biggest commodity companies, including Chalco, have said they're concerned the combination would concentrate supplies and may wield too much pricing power.

``This is our first and only offer,'' Kloppers said in the media teleconference. ``We absolutely want full control of this company,'' Kloppers, 45, said. He wouldn't say whether it would be the final offer, a declaration that would prohibit him from raising the bid.

 

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Goldman's Viniar Says `Fear Overwhelms Greed' in Credit Markets

(Bloomberg) -- U.S. credit markets are trading ``like we're in the middle of the worst recession we've seen in a very, very long time,'' Goldman Sachs Group Inc. Chief Financial Officer David Viniar said at an investor conference today.

``There is a lot of liquidity out there, but people are very hesitant to use it,'' Viniar said at the conference in Naples, Florida, sponsored by Credit Suisse Group. ``Within the credit markets, fear has overwhelmed greed.''

Goldman, the most profitable securities firm in Wall Street history, is down 12 percent in New York Stock Exchange trading this year on concern a weakening economy will damp revenue from investment banking, trading and fund management. The level of interest from investment-banking clients is ``very high,'' though the economy will determine whether deals get done, Viniar said.

Viniar, 52, also said he expects to see a plan devised that will help the monoline bond insurers, which are facing potential rating downgrades.

``It is likely that you will see some solutions to what's going on with the monolines,'' he said. ``You have a number of companies who are involved in a lot of different things, so I think it's going to be more complicated'' than the industry bailout of hedge fund Long-Term Capital Management LP in 1998.

 

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Wall St eyes bounce at open on media profits

(Reuters) - Stocks headed for a higher open on Wednesday as profits from Walt Disney Co (DIS.N: Quote, Profile, Research) and Time Warner Inc (TWX.N: Quote, Profile, Research) pointed to strength in earnings outside of the financial sector.

In economic news, U.S. productivity in the fourth quarter rose at a stronger-than-expected pace as the biggest cutback in working hours in nearly five years helped restrain growth in labor costs, the Labor Department said.

The market was poised to rise a day after recession fears sent Wall Street and markets in Europe tumbling, while overnight markets in Asia also slid.

"It's probably the natural inclination of markets to try to bounce after a bad day," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. "There's no question that Disney helped and productivity numbers coming in better than expected didn't hurt either."

S&P 500 futures rose 4.7 points and were above fair value, a mathematical formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.

Dow Jones industrial average futures were up 20 points. Nasdaq 100 futures rose 6.5 points.

In deal news, global miner BHP Billiton Ltd/Plc (BHP.AX: Quote, Profile, Research) launched a hostile $147.4 billion bid for rival miner Rio Tinto Ltd/Plc (RIO.AX: Quote, Profile, Research) on Wednesday, ending months of speculation and setting the stage for the world's second-largest takeover.

 

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